The dollar and the yen declined as stocks rallied around the world on optimism European leaders are nearing an agreement to contain the debt crisis, damping demand for a refuge. South Africa’s rand, South Korea’s won and New Zealand’s dollar were among the best performers against the greenback before a U.S. report forecast to show consumer confidence rose from a two-year low. Treasury Secretary Timothy F. Geithner predicted European governments will use more force to resolve the crisis after they heard the concerns of global finance officials. The euro rose for a third day versus the dollar as Italy and Spain sold debt via auctions today. “A sizable plan that is credible would provide some temporary respite to the market,” said Chris Scicluna, deputy head of economic research at Daiwa Capital Markets Europe in London. “We think this will be a temporary let up in risk aversion, which has benefited the most liquid safe-haven currencies like the dollar and the yen.” The dollar weakened 2.5 percent to 7.8585 rand at 7:48 a.m. in New York, and lost 1.6 percent to 1,173.55 Korean won. New Zealand’s dollar rose 1.1 percent to 78.91 U.S. cents, and appreciated 1.2 percent to 60.30 yen. Australia’s dollar advanced 1 percent to 99.28 U.S. cents, and added 1.1 percent to 75.875 yen. The euro climbed 0.5 percent to $1.3602, and rose 0.6 percent to 103.94 yen, after falling to 101.94 yesterday, the least since June 2001. The dollar rose 0.1 percent to 76.43 yen. Stocks Surge The Stoxx Europe 600 Index climbed 3.3 percent, taking its advance over the past three days to 5.8 percent. The MSCI Asia Pacific Index jumped 4.2 percent and futures on the Standard & Poor’s 500 Index gained 1.8 percent. “It’s a risk-on day, which is dragging on safe-haven currencies like the dollar and the yen,” said Adam Cole, global head of foreign-exchange strategy at RBC Capital Markets in London. “Risk rallies are likely to be temporary until we get more signs of concrete policy action to address the debt crisis.” The European Central Bank is likely to debate next week restarting covered-bond purchases and may discuss interest-rate cuts, a euro-region central bank official who declined to be named said yesterday. European officials “heard from everybody around the world” in Washington last week, Geithner said on ABC’s “World News With Diane Sawyer” program. Europe’s crisis is “starting to hurt growth everywhere, in countries as far away as China, Brazil and India, Korea. And they heard the same message from us they heard from everybody else, which is it’s time to move.” Greece Talks Greek Prime Minister George Papandreou is meeting with German Chancellor Angela Merkel in Berlin today as credit- default swaps show a more than 90 percent chance the Mediterranean nation will default on its debt. The talks come two days before German lawmakers are set to vote on enhanced powers for the euro-region’s 440 billion-euro rescue fund. UBS AG cut its forecast for the euro yesterday, saying the currency is now likely to weaken to $1.20 over the next three months, compared with a previous estimate of $1.30. “Investors are likely to keep seeking the safe-haven dollar as they flee riskier currencies,” UBS said in a research note. “Investor sentiment is likely to remain fearful near- term, owing to the weakening global economy, the euro-zone debt crisis and lack of a coordinated response by policymakers.” Debt Auctions The euro has lost 5.7 percent against the yen this month, set for the sharpest monthly drop since May 2010. The shared currency’s 10 percent decline versus the yen over the past three months is also the worst since the quarter ended June 2010, when it also slumped to a four-year low of $1.1877 The yen has gained 11 percent in the past three months against a basket of nine developed-market peers, the best performer tracked by Bloomberg Correlation-Weighted Indexes. The dollar has appreciated 4.2 percent while the euro has depreciated by 2 percent. The euro will decline to “sub $1.30” by year-end, Daiwa’s Scicluna said. Spain sold 3.22 billion euros of three- and six-month bills, compared with the Treasury’s maximum target of 3.5 billion euros, the Bank of Spain said. The yield on the three- month debt was 1.692 percent, compared with an average yield of 1.357 percent when similar securities were sold on Aug. 23. Italy sold 182-day bills at 3.071 percent, up from 2.14 percent at the previous auction of similar-maturity debt on Aug. 26. Yen Risk The Conference Board’s U.S. consumer confidence index will rise to 46 this month, according to economists surveyed by Bloomberg News before today’s report. The reading in August was 44.5, the weakest since April 2009. The yen has strengthened against all its 16 major counterparts this month, prompting concern Japan will intervene in the foreign-exchange market to halt its advance. Japan is ready to take bold action on the currency if needed, Finance Minister Jun Azumi said today. Japanese companies are “increasingly expressing their concern about the appreciation of the yen,” Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney, said in an interview on Bloomberg Television. “The pressure on the cabinet to do something and make some bold steps will increase in the days ahead, so the yen is another safe haven I’d be avoiding.” To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Garth Theunissen in London gtheunissen@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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